Programmatic Technical Assistance Partnership Developing capital market conditions for the introduction and development of second pillar pensions Roundtable with Government, market regulators, market participants and donors Kyiv, September 27, 2007

Outline I Background II Key capital market conditions for successful introduction of second pillar pensions III Partnership activity plan

I Background Joint USAID/World Bank position paper: Developing securities markets and non-bank financial institutions in Ukraine: key impediments and reform priorities ahead. 1. Strengthening market regulatory and supervisory framework 2. Strengthening government debt management and debt market development strategy 3. Developing the sub-national debt market 4. Developing the equities market 5. Developing the market for asset-backed securities 6. Strengthening securities market infrastructure 7. Developing investment funds 8. Developing private pensions 9. Developing the insurance sector

II Key capital market conditions for successful introduction of second pillar pensions 1. Macro-financial stability and balanced strategy for financing of transition cost to second pillar Privatization revenues Taxes Debt issuance: foreign vs domestic -> link with government bond market development 2. Strong regulatory and supervisory framework for securities markets and NBFIs Tracing and background checking of ultimate controllers Political independence and financial autonomy of market regulators Capacity of regulators (licensing, risk-based supervision, enforcement)

II Key capital market conditions for successful introduction of second pillar pensions 3. Efficient capital market infrastructure Securities trading platforms Securities depository and settlement system Custodians and registrars Accounting and auditing framework Valuation of infrequently traded securities 4. Diversified supply of domestic securities in which pension funds can invest Government bonds Non-government bonds (munis, mortgage bonds, corporate bonds) Equities

III Partnership Activity Plan (mid 2007 - mid -2011) 1. Macro-financial scenarios for introduction of Pillar 2 pensions Alternative macroeconomic scenarios (GDP growth, CPI growth, real wage growth) Alternative second pillar scenarios (increase in contribution rate, decrease in payroll tax rate) Alternative financing scenarios (privatization revenues, taxes, debt (external vs internal) -> World Bank Advisory

III Partnership Activity Plan (mid 2007 - mid -2011) 2. Strengthening of regulatory and supervisory framework Policy reforms Empowering regulators to trace and check background of ultimate controllers Adopting strategy to increase political independence and financial autonomy of regulators in accordance with international standards Enabling consolidated supervision -> World Bank DPL Twinning programs for regulators Strengthening licensing and carrying out re-licensing program Introducing risk-based supervision Strengthening enforcement FSR -> USAID CMD Project, World Bank ATF Project, multilateral/bilateral donor SCSSM -> USAID CMD Project, World Bank ATF Project, multilateral/bilateral donor

III Partnership Activity Plan (mid 2007 - mid -2011) 3. Strengthening market infrastructure Policy reforms Requiring trading of listed securities on the exchange where they are listed Requiring electronic reporting of OTC trades to PFTS Limiting ownership (direct or indirect) in depositories to maximum 5% (*) Enabling implementation of G30 standards (lending and borrowing of shares, netting) Enabling MFS to open correspondent accounts with foreign depositories -> USAID CMD Project, World Bank DPL (*)

III Partnership Activity Plan (mid 2007 - mid -2011) 3. Strengthening market infrastructure (continued) Strengthening of PFTS Implementation of order-driven system Implementation of EDS Move to DVP Developing links with EU stock exchanges -> USAID CMD Project Strengthening of MFS Move to G30 standards Support DVP Design and implementation of guarantee fund Developing links with EU depositories Implementing IFRS Designing IFRS implementation action plan (fall 07) implementing program -> USAID CMD Project, World Bank/FIRST Initiative

III Partnership Activity Plan (mid 2007 - mid -2011) 4. Developing supply of domestic securities Developing government debt management and debt market development Government debt management roundtable (April 07) Government debt management and debt market development strategy (fall 07) Strategy implementation -> USAID ATCI Project, World Bank PFM Project/FIRST Initiative

Contact points USAID Rick Gurley rgurley@usaid.gov Natalia Berezhna nberezhna@usaid.gov World Bank Michel Noel mnoel@worldbank.org Martin Raiser mraiser@worldbank.org